Philanthropy Prospects

With giving trends in flux and the charitable deduction threatened, how can you strengthen your institution's power to attract sufficient voluntary contributions?

By Sandra R. Sabo

In pursuit of its vision to be a premier research university of international stature, even as state funding had begun to dwindle, Michigan Technological University, Houghton, launched a multiyear fundraising initiative in 2006. Now in its sixth and final year, Generations of Discovery: The Campaign for Michigan Tech has raised about $183 million.

"We're on target as far as giving goes," says Dan Greenlee, chief financial officer and treasurer of the board of control at Michigan Tech, who remains confident the campaign will meet its $200 million goal. "In the last two years, we've seen a good uptick in both outright gifts and pledges. Overall giving is coming back up, after the recession in 2008 and 2009," Greenlee reports. In fact, Michigan Tech added a year to the campaign's original length because fundraising in 2009 proved so difficult.

Giving Goes Up

In many respects, Michigan Tech's experience reflects the philanthropic trends at work throughout higher education. In its annual Voluntary Support of Education survey, the Council for Aid to Education reports that charitable contributions to U.S. colleges and universities in 2011 increased 4.8 percent, after being adjusted for inflation. Similarly, in Giving USA 2012, the Center on Philanthropy at Indiana University reports a 5.2 percent increase in inflation-adjusted charitable contributions to educational institutions between 2009 and 2011.

Fueling philanthropy growth has been the increased giving by individuals. According to the Center on Philanthropy, individuals contributed 3.5 percent more in 2011 than in 2009, after adjusting for inflation.

"Year in and year out, we find that about 75 percent of total giving comes from living individuals," says Patrick Rooney, the center's executive director. "When you add charitable bequest gifts and grant making from foundations in which the family is making key decisions, we estimate that almost 9 out of 10 dollars come from individuals."

Giving USA also reports that giving by bequest in 2011—up 8.8 percent over 2010, in inflation-adjusted dollars—registered its second consecutive annual increase. Cumulatively, inflation-adjusted giving by bequest has increased 21.8 percent since 2009.

"There's definitely a tendency toward a higher proportion of planned gifts—or combinations of outright plus planned gifts—than originally projected," acknowledges Shea McGrew, Michigan Tech's vice president for advancement. "Whether they're concerned about paying for long-term care costs or about their portfolio in general, more people are opting for caution right now."

McGrew also serves as president of the foundation that manages the university's gifts and assets, including the endowment. Half of Michigan Tech's campaign goal amount is earmarked for building that endowment. In addition to increasing the scholarships and fellowships it offers, the university hopes to triple its number of endowed faculty positions.

Endowment Rebuilding

Fundraising for endowments hasn't been easy in recent years, according to the annual NACUBO-Commonfund Study of Endowments (NCSE). In FY11, individual endowed gifts and bequests (excluding annual fund contributions) totaled $5.49 billion, down from $7.9 billion in FY08. In other words, the amount of individual gifts and bequests to college and university endowments has fallen by approximately 30 percent since 2008.

The Council for Aid to Education reports that alumni participation has been declining slowly for the past decade.

Davidson College, Davidson, North Carolina, for one, has bucked that trend. Although its endowment plummeted during the recession, Davidson has rebuilt it to $520 million—an increase of nearly 4 percent over the endowment's prerecession peak. What's more, in the past four years the liberal arts college has doubled the dollars raised through its annual fund, to just over $14 million.

Of that total, about $5 million supports the Davidson Trust, an initiative launched in 2007 to provide a permanent source for the college's financial aid budget. "Through the trust, we meet 100 percent of a student's demonstrated financial need without any need-based loans. The typical package is a work-study job and the rest is grant aid," explains Ed Kania, vice president for finance and administration at Davidson, which has a need-blind admission policy. In 2011, 43.3 percent of Davidson's 1,920 students received financial aid through the trust.

"A few years ago, in response to an increased tendency among donors to designate gifts, we adjusted our annual fund model to include the Davidson Trust, in addition to our athletic programs and our public radio station," adds Kania. As a fourth option, donors can designate their gifts to the Living Endowment—a pool of unrestricted funds, expended each year, for faculty salaries, academic resources, and other areas where the need is greatest.

Financial Aid Appeals

Historically, Michigan Tech has used its annual fund to solicit unrestricted gifts to the university. A change is under way, however; starting this year, the annual fund will be positioned as support for financial aid. "The funds will still be spendable in that fiscal year. We're just changing the appeal we're making," McGrew notes. "The idea of people helping others go to school has a natural appeal."

Similarly, John Brown University (JBU), a private Christian institution in Siloam Springs, Arkansas, promotes contributions to its annual fund as money that goes directly to students in the form of scholarships. The school just wrapped up its Keeping Faith campaign, a seven-year initiative to raise $110 million for capital projects, scholarships, and endowments for academic chairs and facilities.

"We not only came in over goal, at $118 million, but also finished a year early—and 99 percent of the funds are in the door," reports Kim Hadley, vice president for finance and administration. Beyond growing its scholarship endowment from $12 million to $34 million through the campaign, JBU focused on putting about $1 in the endowment to fund scholarships and building operations for every $1 spent on a building.

"As the market values were declining during the recession, we were adding new funds to the endowment the whole time," Hadley continues. "With more funded and endowed scholarships to give, less institutional aid was needed during the economic downturn—and that helped reduce the impact of the recession on our discount rate."

JBU's endowment benefited greatly from a $10 million challenge issued by an anonymous donor. "Besides current gifts, the donor matched charitable remainder trusts, charitable gift annuities at a certain percentage, and life insurance, which kept our planned giving efforts going," says Jim Krall, vice president for university advancement. "In some cases, the challenge was a tipping point for people who had thought for years about doing an endowed scholarship or planned gift—with the match, they realized they could create it after all."

Alumni Connections

Despite the success of JBU's campaign, Krall noticed one troubling trend: a continuing slide in alumni participation rates. The Council for Aid to Education reports that alumni participation has been declining slowly for the past decade, decreasing from 13.2 percent in 2002 to 9.5 percent in 2011—a 28 percent drop. This statistic, however, does not reflect donations that alumni made through foundations, donor-advised funds, or their own companies.

Research conducted by the Council for Advancement and Support of Education (CASE) points to slightly higher percentages. The CASE Campaign Report 2011, which surveys institutions with fundraising campaigns still under way or recently completed, shows a median participation rate of 16 percent among alumni overall; at private institutions, the median is slightly higher—18 percent.

Whatever their participation rate, those alumni represent the most generous category of donors to fundraising campaigns, accounting for nearly one third (32 percent) of the total campaign funds received. According to CASE, foundations—which provide 22 percent of the total funds received—come in a distant second.

"No institution can assume anymore that its own alumni will give, and attrition rates are too high for those who do," says McGrew, who reports 16 percent participation for alumni giving at Michigan Tech. "Especially among young alumni, giving is more intermittent—just because they gave $25 this year doesn't mean you can count on them to re-up or increase that amount next year.

"We've found that alumni, particularly younger ones, are more likely to give when we can connect them to Michigan Tech in a way that really engages their time and attention," he continues. The university offers a number of ways to do that:

Many of its alumni groups, for example, get together to sponsor Make a Difference Day, an afternoon devoted to volunteering within local communities.

The university developed an online program that enables alumni, no matter where they live, to be matched to students who would like a mentor.

Each September, Michigan Tech invites its Presidential Council of Alumnae to campus for a two-day meeting with the top female students whose academic departments have designated them as Women of Promise.

In group and one-on-one mentoring sessions with the students, the alumnae share their thoughts and experiences on career development. After the students have graduated, of course, Michigan Tech hopes they'll recall that valuable mentoring experience and make gifts to the university in appreciation.

Rules of Engagement

Alumni of Chicago's Robert Morris University (RMU)—which began granting bachelor degrees in the mid-1990s and graduate degrees in the mid-2000s—are just getting to the point in their careers when they might consider larger gifts to the institution. Most of them, like RMU's current student population, were first-generation college students who may not have grown up in philanthropic-minded families.

As long as the economy—and people's perception of it—remains uncertain, encouraging philanthropy will require more finesse and diplomacy than usual.

"In families that have several generations of college graduates, giving into the future is almost inbred—it's what you do," says Ron Arnold, vice president for business affairs at RMU, which provides some type of financial aid to more than 90 percent of its students. "We have to develop that understanding of giving back to the institution, starting with our student base."

"What makes students want to give back after graduating? If you provide a high level of caring, engagement, and financial support when they're in school, then they'll certainly be more willing and able to engage with the institution as alumni," believes Susan Lindahl, executive vice president for administrative services and chief operating officer at Baker University, Baldwin City, Kansas.

Davidson College tugs on the heartstrings a bit by reminding seniors of the wonderful experience they have had and emphasizing the importance of providing that same experience to others through philanthropy. Ed Kania describes the sessions as a combination of fun and education—and, clearly, the college is doing something right. For the past 10 years, Davidson has registered alumni giving rates of more than 60 percent.

Here are some other approaches to involving students in philanthropy so they'll develop the habit of giving:

Names and faces. "Each year, we have a special reception to recognize the people who give money for scholarships, which gives them the opportunity to meet the students they support," says Kristin Watkins, associate vice president for college advancement at Portland Community College, Oregon. In turn, those students can put names and faces to the concept of philanthropy. Similarly, Baker University hosts a scholarship night to introduce recipients of endowed scholarships to the donors. "That event provides donors with a deeper level of engagement and connection than they feel from just writing a check," says Lindahl. "Some students stay in touch with those donors for years." In addition, Baker often taps current scholarship recipients to speak about their campus experiences at alumni events.

Capitalizing on community. Baker University is fortunate to have a president who is extremely outgoing and often seen around its main campus in Baldwin City, says Lindahl. She notes, "Our president makes a point of knowing students by name, so when they graduate they have a more personal relationship with the university community." To reinforce that connection, Baker's president frequently attends alumni events throughout the country.

Making the call. After years of contracting with a third party for alumni fundraising calls, New England College, Henniker, New Hampshire, recently brought much of its phone-a-thon operations back in-house and uses student callers. The students' first names and photos appear on the college's Web site, along with brief biographical material, to personalize the connection with alumni. As for the students, the experience leaves them with an understanding of the importance of any gift, no matter what its size, to the annual fund. "It's too early to know how effective the student callers are," says Paula Amato, vice president of finance and administration. "But, not counting the dollars, it makes sense from a public relations standpoint to have alumni talking to students rather than to someone reading off a script."

Reality checks. As Robert Morris University sees it, fundraising appeals will resonate only with alumni whose degrees have led to steady employment and ongoing professional opportunities. That's why RMU's curriculum includes four required courses related to exploring and managing a career. In addition to emphasizing career counseling throughout the undergraduate years, RMU requires each senior to complete an externship (in which he or she has an opportunity to observe or shadow a professional on the job) before graduation.

Sincerely yours. Early each school year, John Brown University hosts several parties—complete with light refreshments—during which scholarship recipients write thank-you notes to donors. "We encourage the students to share a little bit about themselves, such as their hometown and major, and explain how the scholarship has made a difference in their lives," says Krall. "Many donors keep those notes, rereading them again and again." This year alone, JBU mailed 1,000 thank-you notes, all handwritten.

Special excursions. Shortly before graduation, the senior class at New England College typically sponsors a one-day trip, which is free for soon-to-be alumni who make a minimum gift to the college's annual fund.

Learn and do. Portland Community College offers a special program known as Students4Giving. Participants learn about philanthropy, conduct an auction to raise money, then decide as a group how to allocate the profits. "The class is not led by the foundation, nor is it a broad approach to educating a lot of students, but it's a step toward cultivating a culture of giving," says Watkins.

Meet and greet. Each year, Baker Univ-ersity selects about 20 students to serve as ambassadors for the university at special events on campus and as liaisons between the student body and the administration. Competition is stiff for this parMentors program (named after historic Parmenter Hall), which looks for students who are socially adept and willing to learn about the university's history and traditions. In addition to participating in high-level networking events while still a student, each parMentor is paired with a Baker trustee for mentoring in a particular professional field, such as banking, insurance, or law.

Welcome to the club. In years past, New England College presented actual diplomas at graduation. "Now, we mail the diplomas and during commencement we present graduates with a diploma cover, inside of which is material welcoming them as new alumni," says Amato.

A class act. For the past decade, it's been traditional for members of the graduating class at Davidson College to make a gift to the annual fund, often in honor of a professor, a classmate, a coach, or someone else who influenced them during their time on campus. Students designated as Senior Class Gift Agents stand ready to accept the gifts, which are promoted as a rite of passage into the alumni ranks. The Class of 2012 registered 95 percent participation, so the pressure is on for this year's seniors. To make things more interesting, Davidson's president issued a challenge: If the Class of 2013 reaches 90 percent paid participation in the annual fund before graduation day, the president will match all dollars raised, up to $15,000.

Cost consciousness. New England College organized a philanthropy club for students who want to work with alumni and learn more about the institution's fundraising initiatives. Each year, working with the finance and advancement offices, club members identify essential items and services on campus and then attach large "price tags" showing how many annual fund or tuition dollars are needed for that item. "The students make it fun. For example, they may put a tag reading 'Priceless' on someone to represent a scholarship recipient," says Paula Amato. "Our students want to know how the college spends its money, whether tuition dollars or gifts, and this approach shows them firsthand where all the money goes."

Tuition and beyond. Since 2008, John Brown University has annually celebrated Tuition Freedom Day—the day after which gifts to the university cover the costs of the remaining school year. Generally taking place in mid-March, the celebration spotlights the generosity of alumni and other supporters, JBU hopes to instill gratitude in students as well as inspire their future participation in philanthropy. "Tuition Freedom Day communicates, in an understandable, simple way, the impact that donors have on the students' college experience," explains Kim Hadley. "We hope students grasp that, even if they're borrowing money to attend JBU, they'd be borrowing even more if it weren't for our donors."

As for the near future of philanthropy, much will depend upon the economy. Rooney notes that total giving grew, on average, 1.8 percent in 2010 and 2011. "That compares to a 40-year average of 2.7 percent growth for the two years following a recession," he says. "If giving continues growing at that 1.8 percent average, it could take another decade just to get back to where we were in 2007, before the recession began."

As long as the economy—and people's perception of it—remains uncertain, encouraging philanthropy will require more finesse and diplomacy than usual. "Some people believe we've recovered, while others are certain we're falling off the fiscal cliff tomorrow. Addressing those different perspectives makes fundraising more difficult," says Kania.

Meanwhile, in terms of funding challenges, the prospect of sequestration of the national budget (should Congress fail to reach an agreement on a deficit reduction plan by Dec. 23, 2012) is being defined as an impetus that truly may send the American economy over a fiscal cliff. Other government policies under discussion right now (see sidebar, "Policy Choices Shape Charitable Giving") only add to the uncertainty.

Despite it all, Kania describes himself as cautiously optimistic about the economy's direction and his institution's continued ability to attract gifts both large and small. "Personally, I'm an eternal optimist," he says, "but I'm also the CFO—so I have to be rational and realistic as well."

Some Likely Fundraising Success Scenarios

The students of today are the donors of tomorrow. Yet as simple as that sounds, changes to the philanthropic landscape within higher education don't clearly dictate how the donor dynamic will take shape. Current and developing trends, however, point to these implications for how your institution approaches fundraising.

Make fundraising a priority. For much of New England College's 66-year history, the annual fund ran on autopilot. Trustees and other strong supporters of the college, based in Henniker, New Hampshire, made contributions, but many alumni were not cultivated or asked to give. About five years ago, the college restructured its advancement office to add more staff members. Perhaps not surprisingly, says Paula Amato, vice president of finance and administration, "Once we put more effort into fundraising, we saw an increase in giving among all types of donors." The college is now contemplating a capital campaign, its first ever. Portland Community College (PCC), Oregon, has also grown its annual fund, more than quadrupling it within the past eight years to hit the $2.5 million mark this year. During the same time period, PCC's endowment increased from $1.2 million to $5 million. Kristin Watkins, associate vice president for college advancement, attributes the rapid growth trajectory to concentrated efforts to build a better database, strengthen the foundation board, host more donor events, and upgrade donor communications.

Prepare for stiffer competition. "Less than a decade ago, there were fewer than 1 million charities. Now, when you include religious organizations, we have about 1.5 million 501(c)(3)s competing for donor attention and donor dollars," observes Patrick Rooney, executive director of Indiana University's Center on Philanthropy. Even though some charitable organizations folded in the wake of the 2008 recession, he adds, "There's more noise in the philanthropic marketplace." How do you break through the clutter to attract gifts? It certainly helps to have a president and advancement personnel who are good storytellers, believes Susan Lindahl, executive vice president for administrative services and chief operating officer at Baker University, Baldwin City, Kansas. The university just finished a $10 million renovation and expansion of its science center without having to borrow a dime. "Our president, vice presidents, and board members told the story in such a compelling way that individuals truly wanted to be part of the project," says Lindahl.

Cast a wider net. Not only is alumni giving on the decline, but the face of philanthropy is also changing. That calls for broadening your traditional base of support by developing relationships with "outlier" audiences. "Today, for example, it's often the entrepreneurs who end up making large sums of wealth," notes Shea McGrew, vice president for advancement at Michigan Technological University, Houghton. "We're also working hard to bring our alumnae closer to Michigan Tech," adds Dan Greenlee, chief financial officer and treasurer of the board of control. "In the last 30 years, our enrollment of female students has grown from 12 percent to 25 percent and, in my experience, women tend to be very involved givers." According to a recent study by the Women's Philanthropy Institute at the Center on Philanthropy, women who are single heads of households are also loyal donors, tending to support the same organizations consistently. And, compared to men, women are more generous. As Rooney explains, "The research shows that, after you control for differences in income, single women are more likely to give—and to give more—than single men." Portland Community College, where alumni giving has never been strong, has typically focused its fundraising efforts on faculty and staff, who need little convincing to give. "Well into the future, our largest gifts will probably come from our retirees, who believe so strongly in the mission of community colleges and want to leave a legacy," says Watkins. "But we are also focusing more on corporations and on community friends—philanthropists in the area who are passionate about education but may not yet understand PCC's economic connection to the city."

Forget "one size fits all." Watkins wonders whether a generational divide has surfaced among donors. "The Greatest Generation donors [those who came of age during the Great Depression and World War II] really believe in endowments, in putting that money away because it will produce something you can count on every year," she observes. "Younger donors may not have as great a faith in the market over time. And they want a deeper level of connection, such as more involvement in how the money is spent."

Today's donors also want to see their contributions in action, in tangible ways, says Jim Krall, vice president for university advancement at John Brown University, Siloam Springs, Arkansas. That's why the university divided its recent capital campaign into 10 prioritized projects: $6 million in renovations, followed by a $10 million endowment challenge, followed by a $3.5 million residence hall addition, and so on. Rather than waiting years into the campaign, JBU started a building as soon as the designated dollars for it came in.

"The donors were excited to see their dollars go to work right away, and then they were more open to getting involved in the next project in the campaign," Krall reports.

Policy Choices Shape Charitable Giving

A number of tax policies factor into the amounts that are given annually to charitable organizations. The most fundamental policy—the deduction for charitable donations—has been in our tax laws since 1917. Underlying this long-standing policy is the view that income voluntarily given to charitable organizations, and thus not available for personal consumption, should not be subject to tax.

As a result, individuals who itemize their deductions are allowed to subtract from their income specific donations they have made during the year. Individuals who claim the standard deduction, a portion of which is meant to account for their charitable giving, are similarly not being taxed on their donations, albeit in a less precise manner.

Given current concerns about the federal deficit, legislators are considering various spending cuts as well as new revenue sources. Among the ideas that have been offered:

Limit charitable deductions. This proposal calls for limiting itemized deductions, including the tax deduction for charitable donations. While the proposal is designed to increase the tax paid by wealthier individuals, it is these donors who account for the majority of individual giving. According to a 2011 Congressional Budget Office report on the tax treatment of charitable giving, tax filers who reported an adjusted gross income of at least $100,000 in 2008 were responsible for making about 58 percent of all charitable gifts.

Allow expiration of the IRA charitable rollover rule to stand. At the same time, Congress is also considering whether to extend the IRA charitable rollover rule, which allows individuals 70 and older to donate up to $100,000 from their IRAs and Roth IRAs to charities without having to count the distributions as taxable income. The provision, which expired on Dec. 31, 2011, has increased giving to all public charities, including colleges and universities. A 2007 survey by the Council for Advancement and Support of Education, along with several higher education organizations, found that 67 percent of the gifts to institutions were in amounts of $10,000 or less. More than 80 percent of respondents indicated that the rule resulted in gift revenue that otherwise would not have been received by their college or university.

Strong Lineup Slated to Speak at 2013 Endowment Management Forum

On the agenda for NACUBO's Endowment Management Forum, Feb. 6–8, 2013, in New York City, are expert speakers and panelists from the financial and endowment management industry. Along with fellow institutional managers, convening at the Waldorf-Astoria, they will present sessions around the meeting theme, "Buy What, Sell What, Spend What?" and focus on the problems and opportunities confronting endowment managers in today's volatile global economic environment.

Featured speakers include:

Charles Ellis, author and lecturer, Applecore Partners.

Mark Zandi, chief economist of Moody's Analytics, often commenting for the media on global and national economic conditions.

A.B. Stoddard, associate editor of The Hill, frequent MSNBC and Fox contributor, who will provide insights into the postelection Washington scene.

Other programming includes (1) a panel discussion on issues facing CFOs and CIOs, as endowments continue to play a growing institutional budgeting and management role; (2) roundtable workshops, organized according to institutional endowment size, that allow participants to share problems and solutions via facilitated discussions; and (3) a series of corporate showcase presentations (five in all) slated for Wednesday, Feb. 6, examining issues relevant to the endowment management community.

The forum is designed for the broad spectrum of professionals managing institutional endowments, including chief financial officers, chief investment officers, board members, and the staffs that provide vital support. Don't miss this opportunity to share ideas and discussion with the best in the business. To register at the early-bird rate or obtain further information, go to www.nacubo.org or phone 800.462.4916.